TiVo 2004 Annual Report Download - page 37

Table of Contents
Index to Financial Statements
support or embrace the TiVo technology due to a belief that our technology's ability to fast-forward through commercials will reduce the effectiveness of
general television advertising.
We depend on a limited number of third parties to manufacture, distribute, and supply critical components and services for the DVRs that
enable the TiVo service. We may be unable to operate our business if these parties do not perform their obligations.
The TiVo service is enabled through the use of a DVR made available by us through a third-party contract manufacturer and a limited number of other
third parties. In addition, we rely on sole suppliers for a number of key components for the DVRs. We do not control the time and resources that these third
parties devote to our business. We cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings, or other
benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates its agreement with us or otherwise fails to perform their
obligations in a timely manner, we may be delayed or prevented from commercializing our products and services. Because our relationships with these parties
are non-exclusive, they may also support products and services that compete directly with us, or offer similar or greater support to our competitors. Any of
these events could require us to undertake unforeseen additional responsibilities or devote additional resources to commercialize our products and services.
This outcome would harm our ability to compete effectively and achieve increased market acceptance and brand recognition.
In addition, we face the following risks in relying on these third parties:
If our manufacturing relationships are not successful, we may be unable to satisfy demand for our products and services. We manufacture DVRs that
enable the TiVo service through a third-party contract manufacturer. We also have entered and anticipate entering into agreements with consumer electronics
manufacturers to manufacture and distribute DVRs that enable the TiVo service. However, we have no minimum volume commitments from any
manufacturer. The ability of our consumer electronics manufacturers to reach sufficient production volume of DVRs to satisfy anticipated demand is subject
to delays and unforeseen problems such as defects, shortages of critical components and cost overruns. Moreover, they will require substantial lead times to
manufacture anticipated quantities of the DVRs that enable the TiVo service. Delays, product shortages, and other problems could impair the retail
distribution and brand image and make it difficult for us to attract subscriptions. In addition, the loss of a manufacturer would require us to identify and
contract with alternative sources of manufacturing, which we may be unable to do and which could prove time-consuming and expensive. Although we expect
to continue to contract with additional consumer electronics companies for the manufacture of DVRs in the future, we may be unable to establish additional
relationships on acceptable terms.
We are dependent on single suppliers for several key components and services. If these suppliers fail to perform their obligations, we may be unable to
find alternative suppliers or deliver our products and services to our customers on time. We currently rely on sole suppliers for a number of the key
components used in the TiVo-enabled DVRs and the TiVo service. For example:
• Broadcom is the sole supplier of the MPEG2 encoder and decoder semiconductor devices;
• Amtek is the sole supplier of the chassis; and
• ATMEL is the sole supplier of the secure microcontroller semiconductor device.
Because we do not require customized components from Broadcom, Amtek, or ATMEL, we do not have binding supply agreements with these
suppliers. Therefore, they are not contractually obligated to supply us with these key components on a long-term basis or at all. In addition to the above, we
have several sole suppliers for key components of our products currently under development.
Tribune is the sole supplier of the program guide data for the TiVo service. Tribune Media Services, Inc. is the current sole supplier of program guide
data for the TiVo service. Our current Television Listings Data Agreement with Tribune became effective on March 1, 2004 and has an initial term of three
years and will automatically renew for up to two additional terms of one year each unless we notify Tribune of our desire to terminate the agreement at least
90 days before the end of the then-current term. If Tribune breaches its obligation to provide us with data, or otherwise fails to perform its obligations under
our agreement, we would be unable to provide certain aspects of the TiVo service to our customers. This would have serious repercussions on our brand and
our ability to succeed in the market. We may be unable to secure an alternate source of guide data on acceptable terms.
If our arrangements or our consumer electronics manufacturers' arrangements with Broadcom, Amtek, ATMEL or Tribune Media Services were to
terminate or expire, or if we or our manufacturers were unable to obtain sufficient quantities of these
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